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Interest Rates: Turning Back The Curtain

Mortgage rates for borrowers are impacted by their credit score, loan term, home loan program and a series of market factors that are outside of our control.

Unfortunately, many advertisers will tease borrowers with a low interest rate in an advertising campaign to create  interest in a specific loan program which typically only fits a unique type of qualified borrower.

However, by promoting a lower mortgage rate, with a higher APR, lenders are able to control the flow of the inbound phone call or incoming Internet leads.

Grasping concepts of how interest rates work will certainly help relieve a lot of unnecessary anxiety about the financing processes involved in purchasing or re-financing a home.

While loan programs, credit scores and outside economic factors tend to control interest rates, borrowers do have the option of securing a lower interest rate by paying more up-front costs at the time of closing in the form of a discount point or loan origination fee .

Alternatively, borrowers currently have the choice of paying a slightly higher rate in exchange for lower closing costs.  This particular rate / closing cost scenario is sometimes referred to as a “No Closing Cost Loan” option, or something similar.

Mortgage Rate Basics:

How Are Mortgage Rates Determined?

Many people believe that interest rates are set by the lenders or the mortgage consultant they work with, but in reality, mortgage rates are largely determined by what is known as the Secondary Market.

The secondary market is comprised of investors who buy the loans made by banks, brokers, lenders, etc. and then either hold them to earn interst on their value, or bundle them and sell them to other investors.

When the secondary market sells the bundles of mortgages, there are end investors who are willing to pay a certain price for those loans in order to profit from the interest earned on those loans.

Top Five Market Factors That Influence Mortgage Rates

Timing the market for the best possible opportunity to lock a mortgage rate on a new loan is certainly a challenge, even for the professionals.

While there are several several generic interest rate trend indicators online, the difference between what’s advertised and actually attainable can be influenced at any given moment by at least 50 different variables in the market, and with each individual loan approval scenario.

Outside of the borrower’s control, the mortgage rate marketplace is a dynamic, volatile living and breathing animal.

Lenders set their rates every day based on the market activities of Mortgage Bonds, also know as Mortgage Backed Securities (MBS).

On volatile days, a lender might adjust their pricing anywhere from one to five times, depending on what’s taking place in the market.

Inflation, The Federal Reserve, Unemployment, Gross Domestic Product and Geopolitics are a few of the items you can pay attention to if you’re trying to track rates for 30 day lock.

Questions Your Lender Should Be Able To Answer About Mortgage Rates

Simply checking online for today’s posted rate may not lead to your expected outcome due to the many factors that can cause each individual rate, mortgage program, conditions and closing cost scenario to fluctuate.

Since mortgage rates can change several times a day, it’s more important to pre-qualify your lender about his/her competency level with regards to mortgage rates.

If your lender doesn’t know what to look for or how to answer some basic questions, there is a good chance you may not ever see that initial interest rate you were quoted.

What’s The Difference Between Note Rate and APR?

Low rates with a high APR may or may not be the best deal.

Comparing apples to apples is the best way to determine which loan closing cost and rate scenario makes sense for your short and long-term financial goals.

How Do Mortgage Rates Move When The Fed Lowers Rates?

The traditional news media generally announces mortgage rate movement a few days too late, or when rates are moving in the opposite direction of where we need them to go.

One of the big misconceptions most people have about mortgage rates is that the Fed, and / or Federal Government control what mortgage rates look like every day.

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